American Realty's investment-grade rating makes it ready to replace $2.75 billion bridge loan

By Lisa Kerner

Charlotte, N.C., Oct. 23 - American Realty Capital Properties, Inc. has a five-year, fully committed $2.75 billion bridge loan from Barclays to help fund its $11.2 billion acquisition of Cole Real Estate Investments, Inc.

The bridge facility, a backstop measure, takes care of any execution risk, said chairman and chief executive officer Nicholas S. Schorsch during a conference call on Wednesday to discuss the transaction details.

"It's not calculated into the long-term model that we'll draw down," Schorsch said. That model has about 90% fixed-rate debt.

American Realty expects to assume about $2.8 billion of long-term debt and $500 million of term bank debt to fund the acquisition, according to a company news release. Looking ahead to 2014, the company expects to replace existing secured mortgage debt with long-term, fixed-rate senior unsecured bonds, extend the average duration of its debt by retiring prepayable short-term debt with long-term debt and ladder new debt.

Since the deal was originally planned, American Realty has become an investment-grade company, the CEO said. It received an investment-grade credit rating of "Baa3" with a stable outlook from Moody's on Oct. 14.

"We have the capacity to be in the market immediately for a bond offering, to put (out) some senior unsecured sevens, 10s, 12s, fives - whatever the appropriate mix is we intend to use it. We have the ability to issue convertibles. We intend to use it," said Schorsch.

According to Schorsch, the transaction is deleveraging. It will bring American Realty's net debt-to EBITDA ratio down to 7.7 times from 9.1 times by year-end 2014.

Including preferred securities, the ratio will go to 8.7 times, from 11.2 times.

Transaction details

Cole will merge with and into a wholly owned subsidiary of American Realty. Cole stockholders may elect to receive 1.0929 shares of American Realty common stock or $13.82 cash for each share of Cole common stock.

Cash elections cannot exceed 20% of Cole's outstanding shares, said Schorsch, and shareholders can elect stock, cash or a combination of cash and stock.

The proposed transaction has been approved by both companies' boards of directors. Upon closing in the first half of 2014, the merger will create the largest net lease REIT with an enterprise value of $21.5 billion, the news release stated.

American Realty is a New York-based real estate investment company with a focus on single-tenant freestanding commercial properties.

Cole Real Estate is a Phoenix-based REIT.

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